Shares of Pepsi (PEP) have been very quietly extending an impressive rally this week. Yesterday the stock closed at new 2016 highs as it stretched the gain off last week's low to 3.5%. Today Pepsi is up another 0.5% as it begins to leave behind layers of solid support. This healthy setup has put the stock on course for more upside. In the near term, Pepsi bulls should adopt a more bullish view.
During the January selloff, Pepsi's downside was well-contained. The stock fell below its 200-day moving average but remained well above both its September and October lows. Pepsi was able to recover its 200-day moving average rather quickly a week after bottoming on Jan. 20. Since the January close, the stock has been building a solid base just above the 200-day. This improving action has allowed the stock to put in higher monthly lows in February and March as the sideways consolidation continued. As a new bull leg appears to be on the way, Pepsi has solid footing underneath.
Pepsi still has considerable hurdles to conquer on its way to new all-time highs. The stock's November/December highs may offer significant resistance in the near term. With shares well below overbought levels, as measured by its daily moving average convergence divergence, and a solid base underneath, a move past this area appears likely.
As this process plays out, Pepsi bulls should consider the stock a low-risk buy between $100 and $99. A close back below this week's low of $98.75 would indicate that a more drawn-out consolidation will be needed before the $103.50 area is challenged.